Questions from Financial Management

Q: A firm has sales of $10 million, variable costs of

A firm has sales of $10 million, variable costs of $5 million, EBIT of $2 million, and a degree of combined leverage of 3.0. a. If the firm has no preferred stock, what are its annual interest charge...

Q: Cohen’s Bowling Emporium has a degree of financial leverage of 2.

Cohen’s Bowling Emporium has a degree of financial leverage of 2.0 and a degree of combined leverage of 6.0. The breakeven sales level for Cohen’s has been estimated to be $500,000. Fixed costs total...

Q: Connely Inc. expects sales of silicon chips to be $30

Connely Inc. expects sales of silicon chips to be $30 million this year. Because this is a very capital-intensive business, fixed operating costs are $10 million. The variable cost ratio is 40 percent...

Q: McGonnigal Inc. has expected sales of $40 million. Fixed

McGonnigal Inc. has expected sales of $40 million. Fixed operating costs are $5 million, and the variable cost ratio is 65 percent. McGonnigal has outstanding a $10 million, 10 percent bank loan and $...

Q: Earnings per share (EPS) for Valcor Inc. are $

Earnings per share (EPS) for Valcor Inc. are $3 at a sales level of $2 million. If Valcor’s degree of operating leverage is 2.0 and its degree of combined leverage is 8.0, what will happen to EPS if o...

Q: Walker’s Gunnery, a small arms manufacturer, has current sales of

Walker’s Gunnery, a small arms manufacturer, has current sales of $10 million and operating income (EBIT) of $450,000. The degree of operating leverage for Walker is 2.5. Next year’s sales are expecte...

Q: Scherr Corporation’s current EPS is $5.00 at a sales

Scherr Corporation’s current EPS is $5.00 at a sales level of $10 million. At this sales level, EBIT is $2 million. Scherr’s DCL has been estimated to be 2.0 at the current level of sales. Sales are f...

Q: Kaufman Industries expects next year’s operating income (EBIT) to equal

Kaufman Industries expects next year’s operating income (EBIT) to equal $4 million, with a standard deviation of $2 million. The coefficient of variation of operating income is equal to 0.50. Interest...

Q: Emco Products has a present capital structure consisting only of common stock

Emco Products has a present capital structure consisting only of common stock (10 million shares). The company is planning a major expansion. At this time, the company is undecided between the followi...

Q: What is the theory of interest rate parity?

What is the theory of interest rate parity?